7 Investing Psychology Biases Every New Investor Must Overcome for Success

Reading time: 3 min

We’ve come a long way as humans.

We've rocketed to the moon, engineered towering cities that scrape the sky, developed life-saving medicine, and created a digital world that has interconnected us like never before.

Shit is wild when you stop to think about it.

Despite all those remarkable innovations, there’s one thing that hasn’t changed throughout the years.

Our investing psychology.

We're richer, smarter, faster, taller, stronger, healthier…

But better investors? Eh, not so much.

No matter how much we progress, we always encounter booms and busts in the markets. And it’s not just the stock market—tulips, gold, tech stocks, real estate, beanie babies, digital images of animals. You name it.

We may be highly advanced but we’ve still yet to learn how to handle fear and greed when it comes to investing and money.

If you've been following my newsletters (first, big shout out to you) then you know I talk a lot about habits and mindset when it comes to money. Why? Because it’s the most crucial part of investing.

Investing isn't just a game of numbers and charts—it's also a battle inside our heads.

Today we’re going to talk about the 7 psychological biases that can trip you up in your investing journey, and how to overcome them.

1. Loss Aversion

We humans hate losing more than we love winning.

We’d rather hold onto a losing investment than sell and cut our loss.

Instead of hoping for a rebound, take the L and move on. It's better to take a small loss than to risk a larger one.

2. Confirmation Bias

This is when you cherry-pick information that supports your beliefs and ignore anything that contradicts it.

Like when you invest in a token because you're convinced it's the next Bitcoin, and you only read articles that back up your belief while ignoring anything that points out potential risks.

It’s important to actively seek out differing opinions—especially the ones that challenge your beliefs.

3. Anchoring Bias

Anchoring bias is when you rely too heavily on the first piece of information you get and base all your decisions off of it.

In investing, you might anchor to the price you initially paid for a token and make all future decisions on that. If you bought a token at $100 and it drops to $70, you might wait for it to reach $100 again before selling, even if all signs point to more dips.

Constantly reassess your investments based on new information.

4. Sunk Cost Fallacy

Ever spent money on something, realized it wasn't worth it, but kept spending money on it anyway because you felt committed?

That's sunk cost fallacy. It can cause us to hold onto bad investments because we've already invested so much in them.

Money in the past can’t be recovered and shouldn't dictate your future decisions.

5. Overconfidence Bias

This is when you hit a few 3-pointers and suddenly think you're the next Steph Curry.

Overconfidence can lead to risky investment decisions.

You’ve made a few good trades and start thinking you can’t lose. You’re invincible. So you go all in on your next trade which leads to a significant loss.

Stay humble or be humbled by the markets.

6. Survivorship Bias

This is when we focus on the people or investments that "survived" and ignore those that failed.

Social media is a highlight reel. You only see the 100x gains, Lambos, and other success stories. It’s easy to start thinking everyone is winning and getting rich.

Remember, for every successful investor, there are many who failed.

7. Herd Mentality

Ever felt the pressure to do something just because everyone else was doing it?

That's herd mentality.

It's like when you went to a concert for a band you weren't a fan of, just because your friends had tickets and you didn't want to be the only one not going.

Humans are social beings, and this extends to investing.

When you start to see others investing in the hottest new token or NFT, you might join in to avoid being left behind.

FOMO is a hell of a drug and can cause costly mistakes.

Remember, just because a lot of people are investing in something, it doesn't automatically make it a good investment.

It's comfortable to follow the crowd, but true investing success requires going against the grain and playing your own game.

Peace,

Fifty Sat

P.S.

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